What’s in a Name?

Quite a bit actually! When it comes to contract law, the name signed at the bottom of the document determines who is liable to perform the obligations in the contract. This comes into play most often with small business owners who see themselves and their business as one and the same. However, if you have taken steps to form a company, that company has its own legal identity which is separate from its owner(s). This was designed as a protection for business owners, but you must take certain steps to ensure this protection is in place.
Take, for example, the plight of Jim, who owned BakeFresh, LLC. BakeFresh, LLC leased its bakery space. However, when Jim was negotiating the lease for his bakery, he did not know how to properly sign the lease on behalf of his company, BakeFresh. So, even though the bottom of the lease indicated “BakeFresh, LLC,” Jim signed his own name at the bottom of the three-year lease. The bottom of the lease looked like this (obviously, it has been simplified for this example):
The parties hereto agree to lease the premises for a period of three years.
Tenant: ___Jim____.
Landlord: ___Bobby____.
After a year and a half of successful operation, BakeFresh’s largest customer went bankrupt and didn’t pay its bill to BakeFresh, LLC. Without the payment from its largest customer, BakeFresh did not have enough money to pay its rent and other bills. Soon thereafter, Jim had to sadly close BakeFresh’s doors. A short while after closing down BakeFresh, LLC however, the landlord came after Jim for unpaid rent. Unfortunately for Jim, since it was his name signed to the contract, he was liable for the rent payments personally. The protection that Jim thought he got by forming the company, in that instance, was to no avail.
So, how do we avoid Jim’s unfortunate circumstance and ensure that we are taking full advantage of the protection offered by forming companies? The first step in treating the business like the separate legal identity it is. That means, when it comes to contracts, make sure that 1) it’s the company, and not the owner, that is named in the contract; and 2) that the company is the one that signs the contract, not the owner.
The first step is simple. In Jim’s case, he needed to make sure that BakeFresh, LLC was named. Not Jim. With that done, we move on to the second step: ensuring that the company signs the contract, not the owner. But how does a company sign a contract? After all, a company is not a real person, right?
While true, a company does not have hands to hold a pen and sign a signature, it has agents that can be authorized to sign in the company’s name. Most often, the primary authorized agent is you, the business owner. So, you sign the document on behalf of your company. This is best done the following way:
  1. On the signature line, handwrite (or typewrite) the company’s name.
    1. Important Tip: it must be letter-for-letter identical to the name that the company filed with the state’s secretary of state! Don’t forget the “LLC” or “Inc.” or “Co.” at the end!
  2. Next to, or below, the company’s name, write “By:” and then sign your own name.
    1. Tip: Yes, I know I just told you not to sign your own name, but it is proper to sign your own name here as long as it is preceded by the word, “By”. In essence, you are informing the contract parties which the agent signed on behalf of the company.
  3. Lastly, after or below your signature, indicate your title. Are you the company’s president? Owner? Member? Agent?

All put together, it will look like this:
The parties hereto agree to lease the premises for a period of three years.
Tenant: ___BakeFresh, LLC____. By: Jim , Member.
Landlord: ___Bobby____.
As demonstrated immediately above, BakeFresh, LLC will be obligated, not Jim, to the lease. Now, Jim will be able to take full advantage of the protections offered by having a company.

Post Falls Law can help you with your business contracts